Personal Finance

Anyone use the Government of Canada retirement calculator?

  • Last Updated:
  • Jan 26th, 2020 1:54 pm
[OP]
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Dec 27, 2011
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Waterloo

Anyone use the Government of Canada retirement calculator?

Government of Canada retirement calculator link: https://www.canada.ca/en/services/benef ... lator.html

Sorry for the long post. I was trying to figure out roughly how much money I'll need to save each year to ensure I have enough when I retire. But based on this calculator (which is the most detailed calculator I've found), it seems not only will I not need any personal savings, but I'll actually have way more than required. This doesn't seem right cause I'm always hearing or reading how you need to save some money for retirement.

Here are some assumptions I inputted into the calculator (I was being conservative if anything):
- I retire at 65
- I used the default life expectancy based on current age and gender
- I used the average CPP annual payment (though I'm thinking I'll probably receive a bit more than the average amount although certainly not the max amount)
- I have an employer pension (defined contribution plan, nothing special). I also inputted a $0 current value as I'm not sure how much it's currently at
- Rate of return on my pension investments is 5% (Good chance it ends up higher. All pension money is invested into low cost index funds)
- I have $0 in TFSA and never contribute anything
- I have $0 in RRSP and never contribute anything

The retirement calculator gives the following results:
Canada Pension Plan: $8,074 annually
Old Age Security: $7,362 annually
Employer Pension: $19,718 annually
Total: $35,154 annually

I'm estimating my annual expenses will be about $25k max per year which factors in my spouse contributing half for shared expenses. It assumes there will no longer be a mortgage (paid off) or children expenses (moved out). And I've also added several thousands for healthcare expenses (in case health issues arise with age) and vacation.
So with estimated annual retirement expenses of $25k and estimated retirement income of $35k, I'll have $10k extra per year. This is with zero personal savings.
Does that seem right? I'll have more than enough just from CPP, OAS, and employer pension? Or is the calculator not that accurate?

If it's accurate, is it because I have an employer pension? Do most people not need any personal savings if they have an employer pension? Or maybe my expenses in retirement just aren't that high?
8 replies
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Aug 7, 2007
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I just used the calculator and I did some math on my DB plan on the side to verify. The calculator is a fairly good estimate. I am not familiar with OAS or CPP but I am with DB.

Now I don’t know what year you’ll be retiring, but you might be able to get by with $35k in 2020 but is $35k sustainable in 2025? 2030?

In my case, I predict (using today’s numbers) that I will be receiving a pension of $75,000 annually starting in 2045 from my DB plan alone. Some people might say I don’t need any side savings at all but personally, I still would like to max out my TSFA but I do not contribute to my RRSP.
Sr. Member
Oct 14, 2012
648 posts
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Woodstock
A couple of things occur to me right away:

1. You should never plan on having a spouse in retirement
https://www.bmo.com/familywealth/pdf/BM ... 0%2031.pdf
"So you might be surprised to hear that 43% of Canadians aged 65 and older are single. Some never married, but 88% of those singles are widowed, separated, or divorced. Being single at some point in retirement is a new reality that few Canadians have planned for. "
Having gone to 8 funerals in the last two years of spouses of friends younger than us and we are in our 50s, I'm afraid they are right.

2. Watch out for inflation. I don't think you can claim your return is going to be 5% a year unless you claim your inflation rate is 3.5% a year. "REAL" inflation is much higher than what the government uses to index CPP, OAS etc.
For e.g. our city property taxes have been rising between 3-4% a year; our electricity costs went up more than 7% one year alone.

3. Remember to factor in a LOT of costs that you don't notice right now:
new cell phone
new computer
new-to-you vehicle
new eye glasses
all the house things that will wear out 25 years into retirement: roof; furnace; plumbing pipes; windows etc

4. Watch out for dental costs. My 87-year-old relative needs to have two molars extracted. they made it this far but they are literally falling apart now. Over $5000 all in, not including anything to replace them so can't chew on that side any more! Can't just be pulled out (because falling apart) so has to have dental surgery. A single root canal and cap can easily be $3500 and they get nearly impossible to avoid when you're truly old. For 99% of us, there is no dental insurance when we stop work that will cover those kind of big bills.

FWIW, I also have elderly relatives, a married couple in their late 80s, who are making $65 000 a year between pensions, OAS and CPP. That was enough money that even with some modest vacations, a cottage, and things in their 70s they were saving money each year. Now though they have had to move into a senior's residence because the husband literally cannot cope with stairs, house maintenance etc etc due to crippling back pain (no disease). It costs $6050 a month for rent for a 1-bedroom suite with lunch and supper downstairs. They have to spend about $1000 a month on other food, toiletries, sundries, small gifts, occasional dinner out, alcohol, car insurance, internet, new computer, etc. So they are steadily drawing down their savings. Neither one of them has any disease nor any reason to expect their lives will end soon.

I don't think I'd be thrilled to retire NOW with $65k a year. They retired with that more than 20 years ago--before a LOT of inflation made their work pensions seem paltry.

While you will probably be fine in retirement, if you can save more now without giving up what makes life worth living, then consider saving a bit more.
Newbie
Apr 13, 2019
17 posts
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ADRiiAN` wrote: Now I don’t know what year you’ll be retiring, but you might be able to get by with $35k in 2020 but is $35k sustainable in 2025? 2030?
The calculator expresses its results in today's dollars.
In other words, it takes into account inflation.
[OP]
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Dec 27, 2011
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Waterloo
BetCrooks wrote: A couple of things occur to me right away:

1. You should never plan on having a spouse in retirement
https://www.bmo.com/familywealth/pdf/BM ... 0%2031.pdf
"So you might be surprised to hear that 43% of Canadians aged 65 and older are single. Some never married, but 88% of those singles are widowed, separated, or divorced. Being single at some point in retirement is a new reality that few Canadians have planned for. "
Having gone to 8 funerals in the last two years of spouses of friends younger than us and we are in our 50s, I'm afraid they are right.
Thanks for the reply!
You're right I could either be widowed or divorced by the time I'm retired. If spouse dies...that might actually make my financial situation better lol! I believe you'd get some sort of survivorship pension from both the government pension and employer pension. I know I wouldn't get 100% (or close to it) of what the spouse would normally get if still alive, but I'm thinking there's a good chance it would still actually exceed any of my spouse's portion of shared expenses (property tax, insurance, utilities, internet, water heater rental, house repairs/maintenance, pet expenses, other miscellaneous stuff).
BetCrooks wrote: 2. Watch out for inflation. I don't think you can claim your return is going to be 5% a year unless you claim your inflation rate is 3.5% a year. "REAL" inflation is much higher than what the government uses to index CPP, OAS etc.
For e.g. our city property taxes have been rising between 3-4% a year; our electricity costs went up more than 7% one year alone.
The calculator assumes an inflation rate of 2.2%. I inputted a nominal investment return rate of 5% but honestly over a long term horizon it's probably going to be more than that.
Let's say the "real" inflation rate ends up being 3.5% like you say. The calculator won't let me adjust the inflation rate so to compensate let's say I input a nominal investment return rate of 4% (the calculator won't let me input partial %). If my math is correct, this will mean my actual nominal investment rate is 6.3% (since real inflation rate is 3.5% and calculator can only use 2.2%). 6.3% seems realistic. The amended results in the calculator show I'll have $30k per year which is still more than my $25k expenses.
BetCrooks wrote: 3. Remember to factor in a LOT of costs that you don't notice right now:
new cell phone
new computer
new-to-you vehicle
new eye glasses
all the house things that will wear out 25 years into retirement: roof; furnace; plumbing pipes; windows etc
Yep I've already factored all that and much more into my expenses. My expense budget is essentially made up of 2 broad categories; the expenses that I'll be going through on a daily/monthly/yearly basis, and another category for setting aside savings for those big purchases that might only come along every 5/10/15 years. I've made a comprehensive budget in Excel to account for all that (everything from small daily expenses like toothpaste to big things like new roof/furnace/appliances, etc). That is how I derived my $25k number.
BetCrooks wrote: 4. Watch out for dental costs. My 87-year-old relative needs to have two molars extracted. they made it this far but they are literally falling apart now. Over $5000 all in, not including anything to replace them so can't chew on that side any more! Can't just be pulled out (because falling apart) so has to have dental surgery. A single root canal and cap can easily be $3500 and they get nearly impossible to avoid when you're truly old. For 99% of us, there is no dental insurance when we stop work that will cover those kind of big bills.
I've already increased my dental budget but obviously this is very hard to predict. I expect most years will come under what I've allocated so any extra should offset the years where there's a big dental cost. I suppose I could further increase what I've allocated, but then I think that defeats the purpose of making an accurate budget since I can put down what the worst case scenario will be each year but that's not going to be the reality. And considering the calculator is saying I'll have an extra $5-10k (or more) per year, I'd still be more than covered even if I did have many thousands in dental costs every year.
BetCrooks wrote: FWIW, I also have elderly relatives, a married couple in their late 80s, who are making $65 000 a year between pensions, OAS and CPP. That was enough money that even with some modest vacations, a cottage, and things in their 70s they were saving money each year. Now though they have had to move into a senior's residence because the husband literally cannot cope with stairs, house maintenance etc etc due to crippling back pain (no disease). It costs $6050 a month for rent for a 1-bedroom suite with lunch and supper downstairs. They have to spend about $1000 a month on other food, toiletries, sundries, small gifts, occasional dinner out, alcohol, car insurance, internet, new computer, etc. So they are steadily drawing down their savings. Neither one of them has any disease nor any reason to expect their lives will end soon.
Good point, I hadn't thought about possibly needing to go into a senior home at some point. That would definitely be costly.
BetCrooks wrote: I don't think I'd be thrilled to retire NOW with $65k a year. They retired with that more than 20 years ago--before a LOT of inflation made their work pensions seem paltry.

While you will probably be fine in retirement, if you can save more now without giving up what makes life worth living, then consider saving a bit more.
Unless your expenses are abnormally high, I'd imagine that $65k per year for a retired couple living 20 years ago would've be more than enough. It would be for me anyways lol.
But yes I will definitely be doing my own personal savings. I just wanted to see if the calculator was accurate or not.
Banned
Nov 1, 2013
304 posts
42 upvotes
BetCrooks wrote: A couple of things occur to me right away:

1. You should never plan on having a spouse in retirement
This one caught my eye right away, I don't need to read anything more.
Pattaya here I come....
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Nov 24, 2013
6130 posts
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Kingston, ON
A couple things I haven’t seen mentioned yet,
The retirement calculator gives the following results:
Canada Pension Plan: $8,074 annually
Old Age Security: $7,362 annually
Employer Pension: $19,718 annually
Total: $35,154 annually
That $35,000 is gross income, not what you keep. The age amount tax credit, pension income tax credit, and income splitting for seniors keeps average tax rates pretty low, but you’re still going to have less than “$10k extra” at the end of the day.

I also don’t know the assumptions going into that $19k for your DC employer pension. 5% nominal rate of return less 2.2% inflation is one thing. If we knew what the annual contributions you’re making are (you said you put in $0 for opening balance) then we could understand what the calc is doing. If you’re setting your life expectancy to the average, and it’s taking your pension balance to zero for that age, then it may be drawing down too much too quickly.
[OP]
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Dec 27, 2011
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Waterloo
Mike15 wrote: A couple things I haven’t seen mentioned yet,



That $35,000 is gross income, not what you keep. The age amount tax credit, pension income tax credit, and income splitting for seniors keeps average tax rates pretty low, but you’re still going to have less than “$10k extra” at the end of the day.

I also don’t know the assumptions going into that $19k for your DC employer pension. 5% nominal rate of return less 2.2% inflation is one thing. If we knew what the annual contributions you’re making are (you said you put in $0 for opening balance) then we could understand what the calc is doing. If you’re setting your life expectancy to the average, and it’s taking your pension balance to zero for that age, then it may be drawing down too much too quickly.
Good point with the tax. Any rough idea on what the ultimate tax rate would be on 35k (from CPP, OAS, employer pension) after all the credits and whatnot are applied? I'm guesstimating 20% or less which wouldn't be too bad but ya that cuts down my "extra" income. 35k minus 20% = 28k so still a bit above 25k.

As for the assumptions, I'd rather not disclose all the details (paranoid on sharing too much personal info online I guess Face With Stuck-out Tongue And Tightly-closed Eyes) but I think it's pretty straight forward to calculate the final DC pension amount based on A) current value=$0, B) Annual contributions of $XX, C) Length of time before retirement, and D) 5% nominal rate of return. The final result comes to almost exactly 500k.
Is there a good formula to use to figure out how much money you can withdraw each year until the assumed age of death? I believe the government calculator used a 4% return rate while in retirement (I assume due to using less risky investments while in retirement).
Newbie
Apr 13, 2019
17 posts
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crystallight wrote: Good point with the tax. Any rough idea on what the ultimate tax rate would be on 35k (from CPP, OAS, employer pension) after all the credits and whatnot are applied? I'm guesstimating 20% or less which wouldn't be too bad but ya that cuts down my "extra" income. 35k minus 20% = 28k so still a bit above 25k.
Your tax estimate is probably too high.
When I plug in $35,000 to the Taxtips tax calculator (as employment income) it suggests total tax payable of $4,500 for an Ontario resident. The pension credit and age amount might further reduce this.

crystallight wrote: Is there a good formula to use to figure out how much money you can withdraw each year until the assumed age of death? I believe the government calculator used a 4% return rate while in retirement (I assume due to using less risky investments while in retirement).
I suggest reading about the VPW (variable percentage withdrawal) strategy.
It provides an adjustable guideline for withdrawing money each year in retirement. It is important to note that it is based on two principals:
1) Not running out of money prematurely
2) Not leaving a huge legacy for heirs

The Finiki (linked above) contains a table that can be used to determine the appropriate annual withdrawal, taking into account age and asset allocation.

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